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Joe Eqcome

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  • PIMCO High Income Fund: Substantially Overvalued? [View article]

    Thank you for your comments and the additional documentation supporting the notion that PHK may be overvalued. I think the facts should speak for themselves.

    Joe Eqcome

    On Jul 09 04:09 PM Viajero2007 wrote:

    > Joe Eqcome,
    > I enjoyed your two articles on PHK and agree with your main points.
    > After reading all publicly available information on PHK, I have come
    > to the conclusion that it is indeed "grossly" over-priced for two
    > primary reasons. First, the CEF has become largely driven by retail
    > investors who misunderstand the nature of CEFs and the propensity
    > for price to revert to NAV eventually. I think they are looking at
    > pre-Lehman-bankruptcy price levels to support their investment decisions
    > and are unaware or ignorant of the fact that a significant amount
    > of PHK's equity capital was permanently impaired when they sold a
    > significant amount of their portfolio at distressed prices to repay
    > their ARPs. Data from Yahoo! appears to underscore my hypothesis
    > on retail-driven activity based on the fact that there were -72.6%
    > net institutional sales during 1Q09 are per the following link:
    > The second primary reason for the large premium is that PHK was one
    > of Bill Gross' primary picks during the 2009 Barron's Roundtable.
    > If you look at a five year premium/discount history, you will see
    > that PHK never recorded a large premium (which I would define as
    > 30% or more) until January 2009, which is when Gross recommended
    > PHK in the roundtable. With the exception of a brief return to normality
    > during the height of the March sell-off, this large premium has persisted
    > for approximately six months. Note that this dynamic was first uncovered
    > by JohnnyDiscount as per the following link:
    > I've been frankly amused at some of the creative reasons that retail
    > investors have outlined on the Yahoo! and SeekingAlpha comment boards
    > to justify this obvious market inefficiency. The most credible sounding
    > justification is that "The Bond King," Bill Gross, has taken over
    > as manager and that his skill justifies a premium valuation. However,
    > if you again look at the premium/discount history, you will see that
    > the highest end-of-day premium (97.47%) occurred on 5/6/09, which
    > was prior to the 5/15/09 announcement that Gross had taken over the
    > reins (the premium was 58.47% as of the close on 5/15). I have yet
    > to see a justification which cannot be similarly discredited with
    > basic analysis.
    > The bottom line is that PHK represents a phenomenal pair trade for
    > those investors who have enough knowledge and skill to select high
    > yielding yet fairly valued longs. This trade is a lock for a skilled
    > market neutral trader with a 6 - 12 month time horizon. Furthermore,
    > given the abating run in credit prices it seems as if one could make
    > a reasonable case for a naked short, particularly if PHK trades back
    > into the high 8's or low 9's. This trade is more risky and I would
    > only recommend it for highly vigilant traders who are short-term
    > oriented and technically savvy. Good work, Joe Eqcome, on publicizing
    > this opportunity and warning vigilant longs to prudently take profits.
    > Viajero2007
    > Full Disclosure: I've been short PHK since 6/3/09 and use JNK and
    > a handful of other CEFs and BDCs to hedge income and high-yield exposures.
    Jul 9, 2009. 04:37 PM | 2 Likes Like |Link to Comment
  • PIMCO High Income Fund: Substantially Overvalued? [View article]

    I'm happy for your buying opportunity.

    Joe Eqcome

    On Jul 09 09:22 AM Hops wrote:

    > Funny how these over-valued theories keep coming out the day of ex-dividend
    > when the ETF has the weakest support. A short-selling setup or creation
    > of a buying opportunity.
    > I'm long the fund because I think it's assets will improve in value
    > as the market unfreezes. Last time it took a hit from such an analysis
    > I bought and made a good return.
    > BL
    Jul 9, 2009. 04:20 PM | Likes Like |Link to Comment
  • PIMCO High Income Fund: Substantially Overvalued? [View article]

    If you go to my website homepage (joeeqcome.web.officeli...) you'll see that the article was posted after the market closed yesterday.

    Be careful of impugning someone’s ethics before you have the facts.

    The earlier share drop was more a function of PHK going ex-dividend today.

    Joe Eqcome

    On Jul 09 09:57 AM amorgano wrote:

    > Apprently the people who had knowledge of your article before it
    > was published got out yesterday...nice ethics
    Jul 9, 2009. 01:43 PM | 2 Likes Like |Link to Comment
  • PIMCO High Income Fund: Substantially Overvalued? [View article]
    User 444056

    Thank you for your analysis.

    Your analysis rests on the foundation that PHK is now a trading company versus an investment company. I’m not sure if there is any restrictions regarding what percentage of income a CEF can generate from short term trading activities. (I’m sure someone more knowledgeable can answer this question.)

    Assuming that there is no such restriction, investors are willing to pay a very large premium for Bill Gross trading skills. There might be some justification for that valuation. However, there is not much data to support a CEF trading at such a significant premium as PHK is relative to its mean. The powerful and documented gravitation to the mean is likely to occur over time in the absence of a significantly undervalued, stealth NAV.

    I’m an agnostic regarding PHK’s trading success. I’m just basing my observation on historical facts. Maybe, this time it’s different.

    Joe Eqcome

    On Jul 09 12:13 PM User 444056 wrote:

    > Joe said, "I’d appreciate any additional insight into why this stock
    > is trading where it is."
    > I'll take a stab at this. I'm not a professional analyst, but here's
    > my confusion with Seeking Alpha's analysts and why I own PHK.
    > PHK is a leveraged high-yield fund. Why must "high-yield" come from
    > securities income generated by the fund's portfolio instead of the
    > fund's trading activity?
    > The securities in the fund might not be "earning" +20%, but the money
    > I get out from the trading activity is earning me +20%. Why is that
    > bad for me?
    > Why are analysts analyzing it like a value play? (
    > I get the math about subtracting distributions from income, but the
    > part about not earning and paying out the income from trading --
    > well why shouldn't I expect that? When I buy/sell securities and
    > generate income, I call that "earning". It's not the value-investing
    > form of the word, but it's earnings from my activities, which is
    > security trading. Isn't this what a hedge fund does? (See my interpretation
    > below).
    > Why is this analyst using only the historical premium as a gauge
    > instead of the historical yield?
    > "This is well in excess of its historical premium of 4%."
    > and
    > "Compare this with the metrics of three ETFs that invest in junk
    > bonds"
    > Aren't those other comparative securities getting their yield from
    > the securities in the portfolio instead of their trading activities?
    > In this piece, much more detailed and in depth, I still can't tell
    > why the peer comparisons are valid.
    > Do the 3 ARPS leveraged peers use the same strategies and portfolio
    > mix as PHK? Are they yielding less because they aren't as successful
    > at milking the system? Point 2 is moot if PHK generates it's yield
    > from trading instead of investment income. Point 3 is moot if they
    > adapt to the changing market by moving to more traditional securities.
    > Point 4 is a valid concern. But on the flip side, if the worst is
    > indeed behind us, NAV of PHK will indeed rise. Point 5 is true and
    > valid. But my interpretation is they've changed because the world
    > in which they operate has changed. Point 6: I quite buying, too.
    > How much do the insiders already own, and why should they continuously
    > keep buying more?
    > My interpretation is that PHK has become a hedge-fund-type of investment
    > for the retail investor to take advantage of the distorted market
    > in MBS and CDO securities. For sure, that's a risky game to be in.
    > But doesn't that argue for analyzing PHK as a hedge fund rather than
    > a value or typical high-yield fund? Seems to me the correct analysis
    > is to look at trading strategy, the market in which it trades, and
    > the hedging/risk management of the strategy, not securities analysis
    > ratios.
    > What I gather from these three analysis is they expect PHK will revert
    > to it's historical 12% yield by falling in value to match other high-yield
    > funds producing 12% returns. My reason for owning it is the opposite
    > -- I presume the yield will return to 12% as the management (currently
    > Bill Gross himself) cycles the portfolio out of the old MBS/CDO instruments
    > through trading activities into newer historical norm high-yield
    > instruments, or as the holdings themselves rise in value (as the
    > portfolio securities' internal cash-flows resume) from the shifting
    > economic landscape.
    > Granted, some who follow Elliot Wave Theory don't think we're done
    > with the economic collapse, and others think these old toxic-waste
    > debt instruments are going to live up to expectations of 75% defaults
    > (or worse). But it's my belief that a) the worst is over in the global
    > economy, and b) Bill Gross and company know how to pick the right
    > MBS/CDOs.
    > I sure hope my questions aren't treated as rhetorical. I still haven't
    > read the classic book "Security Analysis", so I really would hope
    > someone can address my misunderstanding on the particular questions.
    Jul 9, 2009. 01:30 PM | 2 Likes Like |Link to Comment
  • What Really Drives the Closed-End Hedge Fund Discount? [View article]

    What is the universe of closed end hedge funds being analyzed?
    Is it a group of publicly traded closed end funds or is it a universe of private hedge funds where someone independently valuing the premium/discount?
    A hyperlink to a source document would be much appreciated.
    Sorry, I'm a pilgrim in this land.

    Joe Eqcome
    Jul 6, 2009. 11:59 AM | Likes Like |Link to Comment
  • CEF Volume Trends May Portend Their Appreciation [View article]

    You claim that CEFs are in a bubble mode. So, I’m making the heroic assumption that this claim is based on your follow up sentence that states CEFs are trading at “all time high premiums….” Of course, this is notwithstanding your implied notion that anyone who invests in CEFs is stupid.

    Setting aside for the moment CEF investor stupidity, unless you’ve developed a valid and reliable model for valuing CEFs NAVs that is different than the one we mortals are employing, there is no empirical evidence to support your claim--none whatsoever on an industry-wide basis. I'm sure anyone of us can point to islolated situations where premiums are perplexing. Case in point is PHK.

    Of course if you have support for you industrywide claim, we would all be appreciative if you could provide us the backup work.

    There is a saw in the investment business, “There are two kinds of statistics, the kind you look up and the kind you make up.” Sound to me you’re trafficking in the latter.

    Oh, by the way, I’m not “taking my book”. I’d love to see your proof for that claim.

    Joe Eqcome

    On Jun 27 10:49 AM mavericks wrote:

    > Author is just talking his book. CEF's are in bubble mode currently.
    > All time high premiums on many I follow as small investors chase
    > yield in tough times. Contrarian indicator?
    Jun 29, 2009. 06:58 PM | 1 Like Like |Link to Comment
  • Spread Between Best and Worst Performing CEFs Narrows [View article]

    At the beginning of each article I spell out "closed end fund (CEF)" so to identify the "CEF" for the purpose of the article is to be denoted as closed end fund(s). This has been the typical convention for abbreviations in legal documents and investment reports.

    If you have a better solution to distinguish the two, I'd be happy to entertain your suggestion.

    Joe Eqcome
    Jun 29, 2009. 09:02 AM | 1 Like Like |Link to Comment
  • iShares Chile ETF Outperforms Credit Suisse Chile Closed-End Fund [View article]

    While I agree with your basic conclusion, the difference in returns and variance may not be as great as you've indicated.

    While not a material difference, and not changing your basic conclusion, I wanted to point out an important criterion for CEF investors is the adjusted returns for distribution and splits. This is important because of the yield nature of CEFs. Over a longer period of time it can be meaningful, particularly when compared to a non yielding investment. If you’re a trader, distribution become less meaningful.

    On share price basis adjusting for distributions and splits, ECH is down 5.4% vs. down 10.2% for CH for the period sighted. (This is versus the -4.6% and -12%, respectively noted above.) This difference is due to the capital gains distribution paid by CH during the period of your chart.

    Additionally, the adjusted index adjusted price standard deviation of each was fairly comparable (ECH: .13; CH: .14)

    I’ve always enjoyed your work. Hopefully you’ll view this comment as additive for retail investors.

    Joe Eqcome
    Jun 26, 2009. 01:13 PM | 3 Likes Like |Link to Comment
  • Last Week's CEF Seesaw [View article]

    So, you're not familar with shorting stocks?
    Good luck with your investments!

    Joe Eqcome

    Jun 22, 2009. 08:55 AM | Likes Like |Link to Comment
  • Morningstar CEF Ratings: Worse Than Random [View article]

    All rating systems, even if it’s looking from a historical prospective, tacitly imply—and investors infer—some value as to its predictive power. If it doesn’t, what’s the point?

    Even the worse of all rating systems, the credit rating agencies (Moody’s, S&P, etc.), implies some predictive power regarding credit worthiness of corporation they analyze. Or why would pension funds and other institutional investors require investment grade ratings for some of their investments if they thought the rating could change tomorrow?

    So, if Morningstar CEF rating are only backward looking and do not imply any predictive power they should be discontinued, because it creates more confusion than clarity for the retail investor.

    At the very least, they should change the name from “rating”—and get rid of the “stars” to something more descriptive: CEF Historical Performance Indicator (“CEF HPI”).

    Additionally, Morningstar should provide a hedge clause anytime that CEF ratings are employed that states: “There is no empirical evidence that Morningstar’s CEF ratings has any investment value at all. It should be used as you would an odometer on your car to be compared with other odometers of your neighbors; which may, or may not, provide you a means to estimate the useful life of your vehicle.”

    Joe Eqcome

    On Jun 09 11:52 PM Wildhawk wrote:

    > You'd think that the author would have gone to the trouble of actually
    > attempting to understand how Morningstar rates closed-end funds before
    > writing an entire article about how bad the rating system has been.
    > The Morningstar closed-end fund rating system is NOT akin to the
    > way they rate stocks (based on their long-term future investment
    > merit), but instead uses the same methodology as open-end mutual
    > funds (where the rating system is based purely on a backward- looking
    > measurement intended to compare similar funds based on their past
    > performance). All the Morningstar ratings system for CEFs is doing
    > is telling you what funds have performed well in the past relative
    > to funds with similar portfolios. It is not intended to be predicted,
    > like their stock ratings are.
    > Since, to my knowledge, all closed-end funds are actively managed,
    > rather than indexed, all the above data shows is that managers of
    > closed-end funds were consistently inconsistent in their ability
    > to outperform their peers- the top managers in one time period became
    > the worst managers in a later time period, not unlike what other
    > studies have shown are similar results from open-end actively managed
    > funds.
    > Anyone who's read a prospectus understands that past performance
    > is not indicative of future returns. If fund investors are using
    > Morningstar's open-end and closed-end fund ratings systems as forward-looking,
    > predictive measures, they're barking up the wrong tree.
    Jun 10, 2009. 01:30 PM | 4 Likes Like |Link to Comment
  • Morningstar CEF Ratings: Worse Than Random [View article]

    First of all, impugning people’s integrity is a serious charge. Let’s review the facts.

    Morningstar has a CEF ratings system. The article was a review of its results over a limited period of time. I’ve acknowledged in numerous places in the article that predicting stock returns is a difficult business and the people at Morningstar are hardworking, well intentioned, high-integrity folks. I sure if you did the same analysis on other rating systems you’d probably get close to random results.

    I’ve also disclosed that I’m in the early development of a rating CEF ratings system. I would place no value on it until it demonstrated its effectiveness--which would probably take a year from this writing. I’ve also indicated that my system might be equally as ineffective once the appropriate data is accumulated. I have not asserted that my ratings are more accurate—they're just there.

    I have no economic interest in my rating system as its available free for those who might have a passing interest. I'm hopeful, that I might be able to incorporate suggestions from others to improve its accuracy.

    Lastly, the article places an emphasis on taking charge of your investments by doing some of your own homework. It’s always desirable to get more than one data point when making investments which I take as a serious business. That data points doesn’t have to be mine.

    This doesn’t sound nefarious to me.

    Joe Eqcome

    On Jun 09 10:05 AM YoYoMama wrote:

    > That you are developing your own rating system for ETFs sincerely
    > casts doubts on the integrity of your motives in posting this article.
    > RE:
    > Disclosure: Joe maintains a CEF rating system on his website that
    > has been operational for a limited time. As a consequence, there’s
    > currently insufficient data for a similar analysis. Once such data
    > has been accumulated, an analysis will be undertaken and presented.
    > It may in fact prove just as disappointing.
    Jun 9, 2009. 12:19 PM | 4 Likes Like |Link to Comment
  • CEFs: Discount at Historical Average [View article]

    With the possible exception of certain muni bond funds, I’m underweighted on the fixed income side—particularly long government/agency bonds. I’m concerned we’re going to see more inflation at some future point in time as global governments print money to float us out of the toxic assets problem. This would put downward pressure on the asset values.

    If you have a slightly positive bias towards the market, you may want to consider “buy-write” CEFs. These CEFs buy a diversified portfolio of stocks and write call option against its portfolio. Such CEFs can generate premium income by writing (sell) the option and if a particular stock gets called away because the share price rises to the option strike price, the CEF can book another gain. You don’t want to owns such funds if you think the market is going to decline as the share price decline can off-set the premium received by writing calls.

    Options are a very specialized investment area which I’m not as familiar as I’d like to become, so caution is in order.

    If you’re so inclined, you might want to consider Eaton Vance Tax-Managed Buy-Write Income Fund (ETB). It has over $300 million in assets, currently yielding 13.9% and is selling a discount of 5.8%.

    Breaking down the 13.9% distribution yield: 2.2% is supported by investment income; if you add on net realized gains it boosts it to approximately 5.8%; the rest coming from return of capital. So, the distribution yield is priced accordingly.

    I hope this is helpful.

    Joe Eqcome

    On Jun 08 10:00 AM oldman wrote:

    > with weakness in employment, housing, retail etc is there any good
    > reason funds that hold goveernment/agency bonds sold off? My thought
    > is perhaps a strong stock market has temporarily changed the flow
    > of funds and weakness in bonds will become stronger a gain. Where
    > would you get your income from now?
    Jun 8, 2009. 12:22 PM | Likes Like |Link to Comment
  • CEFs: Discount at Historical Average [View article]

    I maintain my own database of approximately 640 CEFs and download pricing data daily. So, the CEF discount is calculated on that basis.

    I post the month end Prem/Disc on my website for the Eqcome Index along with its CEF sub-indices (see "CEFIndex", on the website. That Prem/Disc is different than the one I noted in the article as it included a comparison of data I had available for all CEFs in the data base; the Eqcome CEF Index is comprised of just 130 CEFs.

    These number would be different that Claymore CEF index as it is constructed differently.

    You're aware that Claymore updates its index daily? Its available on under indices/fund/clmref/hi...

    I hope this is helpful

    Joe Eqcome

    On Jun 07 01:55 PM bsharvy wrote:

    > Where are you getting the info that the average discount is 5.7%
    > on the index. Claymore's site last updated the info on March 31.
    Jun 8, 2009. 11:26 AM | Likes Like |Link to Comment
  • A Poor Man's CEF Portfolio That Performs [View article]
    Phil, Phil, Phil……..,

    You seemed to have missed the point.

    The point of the article was to construct a CEF portfolio as the S&P stock selection committee would have selected a stock to add to its indices and see how it performed. That selection process included certain criteria when looking for Index candidates: trading analysis, liquidity, ownership, fundamental analysis, market capitalization, and sector representation.

    This portfolio was not meant to be a portfolio of best CEFs picks base upon a portfolio managers criteria, but one constructed on a limited set of rules to test a basis thesis: If you constructed a CEF portfolio like S&P does, what would you get? It just happened to perform favorably relative to a CEF rule based index.

    Anyone can change the stock in the fund types that best suits them. I have no economic interest in the portfolio.

    Since you’ve taken the time to provide a detailed response, let me response in a detail manner addressing your points.

    Point 1: “An investor with $10,000 to invest doesn't need the complexity of something like this.”

    Response: I wouldn’t disagree with this observation but you failed to provide any recommendations or data to support your contention. Is this a case of "proof by assertion".

    Point 2: “One of the major attractions of CEFs is the ability to buy them at a significant discount.”

    Response: The stock for inclusion in the portfolio were based on the limited criteria stated above and not representative of the best stock picks in the sector based upon a criteria, as you’ve mentioned, premium or discount. (Some CEF portfolios are not liquid and are priced infrequently and can cause discounts or premiums not reflect the true underlying value of the assets. This is “mark to market” issue that banks are currently faced with; I’d assume this would apply for high yield bond funds where the last trade may not represent the current value.)

    Point 3: “Your chart includes the distribution yield….Your chart does NOT include each fund's expense ratio, which is VERY important.

    Response: As it relates to the observation regarding distribution yield, I agree that it does represent the dividends from investment income, that is why I labeled it distribution yield and not dividends. Nonetheless, I agree with this observation and given more space I would have made that point.

    Again, an expense ratio would have been helpful given the space. On average the expense ratio is 1.8% versus 1.5% for the industry. The reason for this slighty higher expense ratio is that there are far less higher skilled funds (convert, high yield, etc. represented as fund types) that would charge more than more than the garden variety equity funds.

    Also, your focus on expense ratios might be misplaced if it isn’t compared against a peer group and/or the return generated by the CEF. Sometimes when you pay peanuts you get monkeys.

    4: Your cost comparison of the commissions of buying these funds implies…

    Response: I don’t see what’s so confusing about this point. Let me make it simple for you. There are CEFs that invest in CEFs (FOF is an example). The managements are paid a fee for that purpose; let’s say 1.5%. Let’s say you construct this portfolio yourself of the group of stocks owned by the CEF, wouldn’t you eliminate paying that 1.5% management fee annually? What difficult about this concept.

    Point 5: You should mention that many CEFs, including some on your list, are leveraged….

    Response: Yes, some of these are leveraged, but so are some of the companies that are in the S&P 500. (Do they mention that?) Again, that wasn’t a criterion for the construction of the portfolio.

    Point 6: It is relatively easy to create an index or portfolio of investments that beat a benchmark like the S&P 500 over the last 5 years. Hindsight is 20/20…

    Response: The portfolio was modeled on the selection process of the S&P 500 committee to see if it could be applied to CEFs. The portfolio wasn’t constructed to be a superior performer; it just ended up that way.

    Joe Eqcome

    On Jun 04 02:50 PM Phil S wrote:

    > Hoo boy...
    > Where to start?
    > 1) An investor with $10,000 to invest doesn't need the complexity
    > of something like this. The (likely potential) incremental returns
    > improvements from this on a $10K portfolio are small, relative to
    > incremental costs and complexity it adds versus a plan based on 2-4
    > low cost index funds.
    > 2) One of the major attractions of CEFs is the ability to buy them
    > at a significant discount. Of your 10 funds, only 3 are at a 10%+
    > discount. You've even got a fund trading at a 55.72% premium in there!
    > In my opinion, it is not smart to pay $830 (100 shares worth) for
    > roughly $513 worth of underlying net assets.
    > 3) Your chart includes the distribution yield, which, while somewhat
    > useful, may very well confuse novice investors unfamiliar with CEFs
    > (which often distribute more than they 'earn'). Your chart does NOT
    > include each fund's expense ratio, which is VERY important.
    > 4) Your cost comparison of the commissions of buying these funds
    > implies that by paying some commissions up front, the investor is
    > saving money in the long run, by avoiding "1.5% average CEF management
    > fees". Your description is sloppy and may mislead novice investors.
    > Perhaps you are referring to the AUM (Assets Under Management) fees
    > that some financial advisors charge, ON TOP of fees in underlying
    > investments. In any case, CEFs, like ETFs and mutual funds, have
    > expense ratios that are built in. Investors don't see a line item
    > charge on their brokerage statement for these, but they pay them
    > all the same (they are, if I understand correctly, deducted from
    > the assets of the funds, and effectively lower the NAV and/or distributions
    > of the funds). Note that the expense ratios for CEFs are generally
    > HIGHER than those for low cost, broad-based index funds or ETFs from
    > Vanguard and similar companies.
    > So a small investor has to pay:
    > 1) Commissions
    > 2) Spreads (an implicit cost - roughly half the difference between
    > the bid and ask price for a CEF).
    > 3) Expense ratios
    > The first two are generally paid once when you buy and once when
    > you sell. The last is an ongoing cost.
    > Yes, they avoid a fee to an advisor, if they don't use one. But an
    > investor who is managing their own portfolio (and thus somewhat likely
    > to read this article and perhaps follow the advice), is probably
    > not using an investment advisor charging a wrap fee anyways, and
    > may be confused by your language.
    > 5) In an article seemingly aimed at less knowledgeable investors,
    > you should mention that many CEFs, including some on your list, are
    > leveraged. i.e. They borrow money in various ways to invest more
    > in their target strategy. In good times, that can boost returns,
    > but in bad times (such as we've recently experienced) that can magnify
    > losses. Many leveraged CEFs are significantly riskier than similar
    > non-CEF options.
    > 6) Is this the first publication of your "Eqcome CEF Big 10 Portfolio"?
    > If so, you should probably add a cautionary note for the promising-looking
    > comparison chart. It is relatively easy to create an index or portfolio
    > of investments that beat a benchmark like the S&P 500 over the
    > last 5 years. Hindsight is 20/20. I shoulda/coulda bought Google
    > back in the day. Indexes are far more reliable gauges of the value
    > of a particular strategy or asset class going FORWARD from the time
    > they are first constructed and published. This doesn't mean that
    > it's wrong to show the backtest results for a newly constructed portfolio/index,
    > but rather, you should disclose the date at which it first went 'live',
    > and, particularly for an article aimed at novices, highlight the
    > issues with such backtests.
    > ===
    > OK, so that was a lot of criticism of a relatively short article.
    > Still, I think investors who are interested in owning CEFs should
    > have a reasonable understanding of the costs and risks.
    > All this criticism does not mean that CEFs are necessarily a bad
    > investment. In fact, much of my portfolio is currently in various
    > CEFs. But would-be CEF investors should educate themselves. Understand
    > the costs, the risks, the nature of CEF distributions (and the differences
    > relative to more conventional dividend payments from other asset
    > classes). Understand the nature of CEF premiums and discounts. Realistically,
    > it will take many hours of reading (in my opinion), from a variety
    > of different sources, to really understand CEFs. For a $10K portfolio,
    > it strikes me as unlikely that the incremental benefits of informed
    > CEF investing (relative to other good alternatives) will be large
    > enough to justify the time and commission investment.
    > In particular, be able to solidly answer the question "Why CEFs?".
    > If you don't know why, or if, they are superior for you than other
    > investments, then you probably shouldn't be investing in them.<br/>
    > Disclosure - I currently own many CEFs, but not (at the moment),
    > any of the currently listed "Big 10".
    Jun 5, 2009. 02:20 PM | 3 Likes Like |Link to Comment
  • CEFs Up for the Week; Insider Buying at Boulder Growth Surges [View article]

    By definition closed end funds (CEFs) must distribute their net investment income and capital gains on an annual basis or its equivalent. The only way it can obviate this regulatory requirement is to pay taxes on the income and gains or offset gains with carry forward losses. While from time-to-time, the former, may make sense on a special situation basis, it would be in direct conflict of the purpose of a CEF which is a conduit by definition and would be subject to shareholder protest.

    BIF does Berkshire Hathaway; it also owns other stocks that do pay dividends. In fact, 25% of its total portfolio it REITs that are conduits and pay dividends. Also, any realized gain in the appreciation of Berkshire’s stock held by BIF would be subject to distribution requirements.

    I would submit that if BIF reinstated its dividend that was suspended last year, the stock would respond positively. One would presume that the insiders that currently own 20% of the fund recognize that fact. I thing it is reasonable to assume that dividend will be reinstated; just went would be subject to loss carry forwards and the not so transparent agenda of the insiders who own the management company that advising BIF.

    Joe Eqcome

    On Jun 02 09:23 PM anarchist wrote:

    > My question above was covered in your May 17 article. If 30% of BIF
    > is invested in Berkshire Hathaway then where does the dividend come
    > from since neither BRK.A or BRK.B pays a dividend?
    > Thanks
    Jun 3, 2009. 12:36 PM | 1 Like Like |Link to Comment